The Spanish government is likely to face legal action over its recently announced cuts to support for renewable energy, according to a solar trade group based in the country.

Lawyers representing the Unión Española Fotovoltaica (UNEF) are already studying the draft proposals announced last week that will cap profits for solar farms at a prohibitively low rate. 

Speaking to PV-Tech, Tomás Díaz, UNEF’s head of communications, said the solar industry would not be alone in challenging the retroactive 7.5% pre-tax profit cap placed on solar investments with financial backers likely to explore their options too.

“We expect it to be passed at the end of September or early October. Our lawyers are studying the draft and we expect to go to court in the autumn. We think this will be a long process,” said Díaz who added that legal challenges have been ongoing since the first cuts in 2010.

“This is another part of that same war,” he said. “This has already been taken to the national constitutional court to the Spanish supreme court. Outside of the country investors have taken Spain to international courts and there are international investment funds that will look to do the same."

Díaz claimed that the strongest challenge could come from investors rather than the solar industry itself. The proposed profit cap, which works out at around 5-5.5% after tax, applies not to the electricity generated but to the initial investment. If the rate of borrowing underpinning a project is higher than this rate, it becomes impossible to generate any returns at all. 

“If you are an international investor the government has changed the rules, your returns just got cut from 6% to 1%,” said Díaz. “If you bought a project a year ago the numbers that you used are now worth nothing.”

The Spanish government is faced with dire economic circumstances, compounded by a deficit in its energy budget of €26 billion (US$34 billion) that was estimated to grow by €4.5 billion (US$5.9 billion) this year alone. 

The new legislation also includes some unusual measures that make the latest changes far more radical than previous alterations to subsidy rates.

“The new support scheme opens the door for incentives to close your renewable plant. This must be the first country in the world that will give you money to close your renewable technology down,” claimed Díaz. 

A new levy applied to customers consuming their own electricity will also make it cheaper to buy from the grid than to use your own solar panels, effectively killing the residential market.

“Solar had reached grid parity; you didn’t need any kind of support. The government has now made that impossible. It’s incredible. The rest of Europe is supporting distributed energy and we are going in the other direction,” said Díaz. 

“If we add all the measures that the government has taken since 2010, the reduction in income can be as much as 50-60%.

“The government has been saying since the start of the year that it was going to reduce the costs of electricity so we were expecting some cuts, but we never saw such a reduction coming. 

“The majority of the Spanish PV sector is now out, they are going to go broke, they are going to close their businesses in Spain. We are stunned about the situation. Stunned.”

Díaz also warned that the government could have trouble hitting its target of sourcing 20% of its primary energy demand from renewable energy. While its electricity supply was on course to hit its 40% target, more investment in biofuels and renewable heat is required to ensure the goal for all energy sources is also accomplished. 

The latest announcement could make it hard for the country to achieve that Díaz warned.

“Who is going to invest in renewables in Spain now? No one is going to want to invest in renewables in Spain for the next five to six years because no one will have any confidence in the government.”